What's the difference between a hedge fund and other funds?

Ycarcofin is wrong and the other two answers above are correct. Hedge funds can be defined very broadly as private investment pools that can use a broad array of financial instruments and strategies. I have written 300 articles on hedge funds including "the differences between hedge funds and mutual funds" within my hedge fund blog if you are interested. - http://richard-wilson.blogspot.com/ or http://hedgefundblogger.com/

Feel free to email me directly as well.

A hedge fund is a private limited partnership that engages in investing techniques that mutual funds are not allowed to, as they are regulated by the SEC. As hedge funds are privately held, they are exempt from the Investment Company Act of 1940 through provision 3(c)(1) of the act and therefore have much more flexibility and are less regulated in what activities they can engage in. Your understanding is correct, as the main difference between hedge and mutual funds is that hedge funds can engage in the activities that you listed, among others, while mutual funds are not allowed to. Hedge funds are thought of as more risky because they can engage in these activities, but this assumption does not apply to every fund. In fact, some funds engage in activities which are less risky than the average mutual fund, as the historical function of a hedge fund was to make strategic investments in an attempt to limit risk. However, this got distorted and most people now think of highly risky investments when they think of hedge funds. Just some thoughts, I hope they were what you were looking for.

Best of luck!

Brendan Prewitt

In order to be sold to the general public, a mutual fund must register with the SEC and promise to use diversification and not use leverage, short selling and a bunch of other strategies.

In contrast, a hedge fund can do pretty much anything it wants with minimal, if any, reporting. In exchange, they can only be sold to "qualified investors" (meaning the rich or pension and endowment funds) and they can't advertise; money is placed by word of mouth.

Hedge funds normally bet against the market and try to drive stock prices down, rather than mutual funds trying to buy stocks that are going to raise in price.

The dictionary definition of a hedge fund is:

"an investing group usually in the form of a limited partnership that employs speculative techniques in the hope of obtaining large capital gains"